Company Quick10K Filing
Quick10K
CNA Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$45.55 272 $12,370
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-01 Enter Agreement, Exhibits
8-K 2019-04-29 Earnings, Exhibits
8-K 2019-04-24 Shareholder Vote
8-K 2019-02-11 Earnings, Exhibits
8-K 2018-12-03 Officers
8-K 2018-11-05 Earnings, Exhibits
8-K 2018-09-05 Officers
8-K 2018-08-01 Officers, Exhibits
8-K 2018-07-30 Earnings, Exhibits
8-K 2018-04-26 Officers, Officers, Exhibits
8-K 2018-04-25 Shareholder Vote
8-K 2018-04-06 Earnings, Exhibits
8-K 2018-02-12 Earnings, Exhibits
CL Colgate Palmolive 60,830
TAL TAL Education Group 20,520
TREE LendingTree 5,060
SBCF Seacoast Banking of Florida 1,400
AROC Archrock Partners 1,270
CSPI CSP 52
SNNA Sienna Biopharmaceuticals 50
LWEL Luckwel Pharmaceuticals 0
ABMT Advanced Biomedical Technologies 0
EKKH Eason Education Kingdom Holdings 0
CNA 2019-03-31
Part I
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 q12019cnaex101.htm
EX-31.1 q12019cnaex311.htm
EX-31.2 q12019cnaex312.htm
EX-32.1 q12019cnaex321.htm
EX-32.2 q12019cnaex322.htm

CNA Financial Earnings 2019-03-31

CNA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 1-5823
 
CNA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
36-6169860
(I.R.S. Employer
Identification No.)
151 N. Franklin
Chicago, Illinois
(Address of principal executive offices)
 
60606
(Zip Code)
(312) 822-5000
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated
filer [x]
 
Accelerated filer [ ]
 
Non-accelerated
filer [ ] (Do not check if a smaller reporting company)
 
Smaller reporting company [ ]
 
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
 
Outstanding at April 25, 2019
Common Stock, Par value $2.50
 
271,539,570




Item Number
 
Page
Number
 
 
1.
 
 
 
 
 
 
 
2.
3.
4.
 
PART II
 
1.
2.
6.

2

Table of Contents

PART I
Item 1. Condensed Consolidated Financial Statements
CNA Financial Corporation
Condensed Consolidated Statements of Operations (Unaudited)
Three months ended March 31
 
 
 
(In millions, except per share data)
2019
 
2018
Revenues
 
 
 
Net earned premiums
$
1,803

 
$
1,785

Net investment income
571

 
490

Net investment gains:
 
 
 

Other-than-temporary impairment losses
(14
)
 
(6
)
Other net investment gains
45

 
18

Net investment gains
31

 
12

Non-insurance warranty revenue
281

 
238

Other revenues
9

 
10

Total revenues
2,695

 
2,535

Claims, Benefits and Expenses
 
 
 
Insurance claims and policyholders’ benefits
1,357

 
1,339

Amortization of deferred acquisition costs
342

 
296

Non-insurance warranty expense
260

 
216

Other operating expenses
283

 
303

Interest
34

 
35

Total claims, benefits and expenses
2,276

 
2,189

Income before income tax
419

 
346

Income tax expense
(77
)
 
(55
)
Net income
$
342

 
$
291

 
 
 
 
Basic earnings per share
$
1.26

 
$
1.07

 
 
 
 
Diluted earnings per share
$
1.25

 
$
1.07

 
 
 
 
Dividends declared per share
$
2.35

 
$
2.30

 
 
 
 
Weighted Average Outstanding Common Stock and Common Stock Equivalents
 
 
 
Basic
271.6

 
271.4

Diluted
272.6

 
272.4


The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).


3

Table of Contents

CNA Financial Corporation
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three months ended March 31
 
 
 
(In millions)
2019
 
2018
Comprehensive Income (Loss)
 
 
 
Net income
$
342

 
$
291

Other Comprehensive Income (Loss), Net of Tax
 
 
 
Changes in:
 
 
 
Net unrealized gains on investments with other-than-temporary impairments
4

 
(9
)
Net unrealized gains on other investments
526

 
(429
)
Net unrealized gains on investments
530

 
(438
)
Foreign currency translation adjustment
17

 
12

Pension and postretirement benefits
7

 
10

Other comprehensive income (loss), net of tax
554

 
(416
)
Total comprehensive income (loss)
$
896

 
$
(125
)
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

4

Table of Contents

CNA Financial Corporation
Condensed Consolidated Balance Sheets
(In millions, except share data)
March 31, 2019 (Unaudited)
 
December 31,
2018
Assets
 
 
 
Investments:
 
 
 
Fixed maturity securities at fair value (amortized cost of $37,940 and $38,085)
$
40,553

 
$
39,546

Equity securities at fair value (cost of $812 and $844)
814

 
780

Limited partnership investments
1,876

 
1,982

Other invested assets
59

 
53

Mortgage loans
863

 
839

Short term investments
1,474

 
1,286

Total investments
45,639

 
44,486

Cash
223

 
310

Reinsurance receivables (less allowance for uncollectible receivables of $29 and $29)
4,277

 
4,426

Insurance receivables (less allowance for uncollectible receivables of $41 and $42)
2,435

 
2,323

Accrued investment income
406

 
391

Deferred acquisition costs
664

 
633

Deferred income taxes
217

 
392

Property and equipment at cost (less accumulated depreciation of $214 and $216)
314

 
324

Goodwill
147

 
146

Deferred non-insurance warranty acquisition expense
2,576

 
2,513

Other assets (includes $- and $8 due from Loews Corporation)
1,579

 
1,208

Total assets
$
58,477

 
$
57,152

Liabilities
 

 
 

Insurance reserves:
 
 
 

Claim and claim adjustment expenses
$
21,836

 
$
21,984

Unearned premiums
4,422

 
4,183

Future policy benefits
11,078

 
10,597

Long term debt
2,681

 
2,680

Deferred non-insurance warranty revenue
3,472

 
3,402

Other liabilities (includes $31 and $23 due to Loews Corporation)
3,533

 
3,089

Total liabilities
47,022

 
45,935

Commitments and contingencies (Notes C and F)


 


Stockholders' Equity
 

 
 

Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 271,527,510 and 271,456,978 shares outstanding)
683

 
683

Additional paid-in capital
2,184

 
2,192

Retained earnings
8,976

 
9,277

Accumulated other comprehensive income (loss)
(324
)
 
(878
)
Treasury stock (1,512,733 and 1,583,265 shares), at cost
(64
)
 
(57
)
Total stockholders’ equity
11,455

 
11,217

Total liabilities and stockholders' equity
$
58,477

 
$
57,152

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

5

Table of Contents

CNA Financial Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31
 
 
 
(In millions)
2019
 
2018
Cash Flows from Operating Activities
 
 
 
Net income
$
342

 
$
291

Adjustments to reconcile net income to net cash flows provided by operating activities:
 
 
 
Deferred income tax expense
32

 
29

Trading portfolio activity
(3
)
 
(1
)
Net investment (gains)
(31
)
 
(12
)
Equity method investees
14

 
(2
)
Net amortization of investments
(25
)
 
(15
)
Depreciation and amortization
19

 
20

Changes in:
 
 
 
Receivables, net
44

 
(215
)
Accrued investment income
(15
)
 
(3
)
Deferred acquisition costs
(30
)
 
(29
)
Insurance reserves
57

 
311

Other, net
(117
)
 
(156
)
Net cash flows provided by operating activities
287

 
218

Cash Flows from Investing Activities
 

 
 

Dispositions:
 
 
 
Fixed maturity securities - sales
2,259

 
2,576

Fixed maturity securities - maturities, calls and redemptions
576

 
531

Equity securities
64

 
7

Limited partnerships
186

 
69

Mortgage loans
35

 
11

Purchases:
 
 
 
Fixed maturity securities
(2,447
)
 
(2,690
)
Equity securities
(36
)
 
(98
)
Limited partnerships
(114
)
 
(62
)
Mortgage loans
(59
)
 
(36
)
Change in other investments
(6
)
 
(4
)
Change in short term investments
(177
)
 
208

Purchases of property and equipment
(8
)
 
(38
)
Other, net
16

 
15

Net cash flows provided by investing activities
289

 
489

Cash Flows from Financing Activities
 
 
 
Dividends paid to common stockholders
(643
)
 
(624
)
Repayment of debt

 
(150
)
Purchase of treasury stock
(14
)
 

Other, net
(8
)
 
(7
)
Net cash flows used by financing activities
(665
)
 
(781
)
Effect of foreign exchange rate changes on cash
2

 
1

Net change in cash
(87
)
 
(73
)
Cash, beginning of year
310

 
355

Cash, end of period
$
223

 
$
282

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

6

Table of Contents

CNA Financial Corporation
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Three months ended March 31
 
 
 
(In millions)
2019
 
2018
Common Stock
 
 
 
Balance, beginning of period
$
683

 
$
683

Balance, end of period
683

 
683

Additional Paid-in Capital
 
 
 
Balance, beginning of period
2,192

 
2,175

Stock-based compensation
(8
)
 
(2
)
Balance, end of period
2,184

 
2,173

Retained Earnings
 
 
 
Balance, beginning of period
9,277

 
9,364

Dividends to common stockholders ($2.35 and $2.30 per share)
(643
)
 
(627
)
Net income
342

 
291

Balance, end of period
8,976

 
9,028

Accumulated Other Comprehensive Income (Loss)
 
 
 
Balance, beginning of period
(878
)
 
16

Other comprehensive income (loss)
554

 
(416
)
Balance, end of period
(324
)
 
(400
)
Treasury Stock
 
 
 
Balance, beginning of period
(57
)
 
(60
)
Stock-based compensation
7

 
1

Purchase of treasury stock
(14
)
 

Balance, end of period
(64
)
 
(59
)
Total stockholders' equity
$
11,455

 
$
11,425

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).


7

Table of Contents

CNA Financial Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A. General
Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of CNA Financial Corporation (CNAF) and its subsidiaries. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. Loews Corporation (Loews) owned approximately 89% of the outstanding common stock of CNAF as of March 31, 2019.
The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Intercompany amounts have been eliminated. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, including certain financial statement notes, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in CNAF's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2018, including the summary of significant accounting policies in Note A. The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
The interim financial data as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 is unaudited. However, in the opinion of management, the interim data includes all adjustments, including normal recurring adjustments, necessary for a fair statement of the Company's results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
Recently Adopted Accounting Standards Updates (ASU)
ASU 2016-02: In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases (Topic 842): Accounting for Leases. The updated accounting guidance requires lessees to recognize on the balance sheet assets and liabilities for the rights and obligations created by the majority of leases, including those historically accounted for as operating leases. On January 1, 2019, the Company adopted the updated guidance using a modified retrospective method. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. The Company utilized the package of practical expedients allowing the Company to not reassess whether a contract is or contains a lease, lease classification and initial direct costs. The Company also utilized the practical expedient to not separate lease and non-lease components for all leases.
Adoption of the updated guidance resulted in the following changes to the Condensed Consolidated Balance Sheet on January 1, 2019:
(In millions)
Balance as of December 31, 2018
 
Adjustments Due to Adoption of Topic 842
 
Balance as of January 1, 2019
Property and equipment at cost (less accumulated depreciation)
$
324

 
$
2

 
$
326

Other assets
1,208

 
237

 
1,445

Other liabilities
3,089

 
239

 
3,328


Operating lease right-of-use (ROU) assets, included within Other assets, were reduced by accrued rent and lease incentives of $75 million previously classified as Other liabilities. The updated guidance did not impact the Condensed Consolidated Statements of Operations. See Note K to the Condensed Consolidated Financial Statements for additional information regarding leases.

8

Table of Contents

Accounting Standards Pending Adoption
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The updated accounting guidance requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through net income. The guidance is effective for interim and annual periods beginning after December 15, 2019. The guidance will be applied using a modified retrospective approach with the cumulative effect recognized as an adjustment to retained earnings. A prospective transition approach is required for debt securities that have recognized an other-than-temporary impairment prior to the effective date. The Company is currently evaluating the effect the guidance will have on the Company's financial statements, but expects the primary changes to be the use of the expected credit loss model for its mortgage loan portfolio, reinsurance and insurance receivables and other financing receivables and the use of the allowance method rather than the write-down method for credit losses within the available-for-sale fixed maturities portfolio. The expected credit loss model will require a financial asset to be presented at the net amount expected to be collected. The allowance method for available-for-sale debt securities will allow the Company to record reversals of credit losses if the estimate of credit losses declines.
In August 2018, the FASB issued ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.  The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts.  The guidance requires entities to annually update cash flow assumptions, including morbidity and persistency, and update discount rate assumptions quarterly using an upper-medium grade fixed-income instrument yield.  The effect of changes in cash flow assumptions will be recorded in Net income and the effect of changes in discount rate assumptions will be recorded in Other comprehensive income. This guidance is effective for interim and annual periods beginning after December 15, 2020, and requires restatement of the prior periods presented. Early adoption is permitted. The Company is currently evaluating the method and timing of adoption and the effect the updated guidance will have on its financial statements. The annual updating of cash flow assumptions is expected to increase income statement volatility. The quarterly change in discount rate is expected to increase volatility in the Company’s stockholders' equity, but that will be somewhat mitigated because Shadow Adjustments are eliminated under the new guidance. While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of the business and related cash flows are unchanged.

9

Table of Contents

Note B. Earnings (Loss) Per Share
Earnings (loss) per share is based on the weighted average number of outstanding common shares. Basic earnings (loss) per share excludes the impact of dilutive securities and is computed by dividing Net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
For the three months ended March 31, 2019 and 2018, approximately 971 thousand and 1,009 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For the three months ended March 31, 2018 approximately 9 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were not included in the calculation of diluted earnings per share, because the effect would have been antidilutive. For the three months ended March 31, 2019 there were no antidilutive shares.
The Company repurchased 317,508 shares of CNA Financial Corporation common stock at an aggregate cost of $14 million during the three months ended March 31, 2019. No repurchases were made during 2018.


10

Table of Contents

Note C. Investments
The significant components of Net investment income are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2019
 
2018
Fixed maturity securities
$
455

 
$
446

Equity securities
30

 
10

Limited partnership investments
76

 
30

Mortgage loans
12

 
11

Short term investments
10

 
6

Trading portfolio
2

 
2

Other
2

 

Gross investment income
587

 
505

Investment expense
(16
)
 
(15
)
Net investment income
$
571

 
$
490


During the three months ended March 31, 2019 and 2018, $17 million and less than $1 million of Net investment income was recognized due to the change in fair value of common stock still held as of March 31, 2019 and 2018.
Net investment gains (losses) are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2019
 
2018
Net investment gains (losses):
 
 
 
Fixed maturity securities:
 
 
 
Gross gains
$
36

 
$
69

Gross losses
(42
)
 
(51
)
Net investment gains (losses) on fixed maturity securities
(6
)
 
18

Equity securities
42

 
(15
)
Derivatives
(5
)
 
5

Short term investments and other

 
4

Net investment gains (losses)
$
31

 
$
12


During the three months ended March 31, 2019 and 2018, $42 million of Net investment gains and $15 million of Net investment losses were recognized due to the change in fair value of non-redeemable preferred stock still held as of March 31, 2019 and 2018.
The components of Other-than-temporary impairment (OTTI) losses recognized in earnings by asset type are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2019
 
2018
Fixed maturity securities available-for-sale:

 
 
Corporate and other bonds
$
6

 
$
5

Asset-backed
8

 
1

OTTI losses recognized in earnings
$
14

 
$
6





11

Table of Contents

The following tables present a summary of fixed maturity securities.
March 31, 2019
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
(In millions)
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
19,296

 
$
1,269

 
$
99

 
$
20,466

 
$

States, municipalities and political subdivisions
9,279

 
1,299

 

 
10,578

 

Asset-backed:
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
4,760

 
92

 
20

 
4,832

 
(22
)
Commercial mortgage-backed
2,026

 
53

 
7

 
2,072

 

Other asset-backed
1,877

 
25

 
12

 
1,890

 
(3
)
Total asset-backed
8,663

 
170

 
39

 
8,794

 
(25
)
U.S. Treasury and obligations of government-sponsored enterprises
162

 
3

 
1

 
164

 

Foreign government
502

 
12

 
1

 
513

 

Redeemable preferred stock
10

 

 

 
10

 

Total fixed maturity securities available-for-sale
37,912

 
2,753

 
140

 
40,525

 
$
(25
)
Total fixed maturity securities trading
28

 

 

 
28

 
 
Total fixed maturity securities
$
37,940

 
$
2,753

 
$
140

 
$
40,553

 
 
December 31, 2018
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
(In millions)
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
18,764

 
$
791

 
$
395

 
$
19,160

 
$

States, municipalities and political subdivisions
9,681

 
1,076

 
9

 
10,748

 

Asset-backed:
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
4,815

 
68

 
57

 
4,826

 
(20
)
Commercial mortgage-backed
2,200

 
28

 
32

 
2,196

 

Other asset-backed
1,975

 
11

 
24

 
1,962

 

Total asset-backed
8,990

 
107

 
113

 
8,984

 
(20
)
U.S. Treasury and obligations of government-sponsored enterprises
156

 
3

 

 
159

 

Foreign government
480

 
5

 
4

 
481

 

Redeemable preferred stock
10

 

 

 
10

 

Total fixed maturity securities available-for-sale
38,081

 
1,982

 
521

 
39,542

 
$
(20
)
Total fixed maturity securities trading
4

 

 

 
4

 
 
Total fixed maturity securities
$
38,085

 
$
1,982

 
$
521

 
$
39,546

 
 

The net unrealized gains on investments included in the tables above are recorded as a component of AOCI. When presented in AOCI, these amounts are net of tax and any required Shadow Adjustments. To the extent that unrealized gains on fixed income securities supporting certain products within the Life & Group segment would result in a premium deficiency if realized, a related increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments). As of March 31, 2019 and December 31, 2018, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $1,458 million and $1,078 million.

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The following tables present the estimated fair value and gross unrealized losses of fixed maturity securities in a gross unrealized loss position by the length of time in which the securities have continuously been in that position.
 
Less than 12 Months
 
12 Months or Longer
 
Total
March 31, 2019
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
(In millions)
 
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
1,656

 
$
39

 
$
1,743

 
$
60

 
$
3,399

 
$
99

States, municipalities and political subdivisions
14

 

 
3

 

 
17

 

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
94

 

 
1,494

 
20

 
1,588

 
20

Commercial mortgage-backed
184

 
2

 
236

 
5

 
420

 
7

Other asset-backed
450

 
10

 
95

 
2

 
545

 
12

Total asset-backed
728

 
12

 
1,825

 
27

 
2,553

 
39

U.S. Treasury and obligations of government-sponsored enterprises
48

 
1

 
14

 

 
62

 
1

Foreign government
32

 
1

 
27

 

 
59

 
1

Total
$
2,478


$
53


$
3,612


$
87


$
6,090


$
140

 
Less than 12 Months
 
12 Months or Longer
 
Total
December 31, 2018
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
(In millions)
 
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
8,543

 
$
340

 
$
825

 
$
55

 
$
9,368

 
$
395

States, municipalities and political subdivisions
517

 
8

 
5

 
1

 
522

 
9

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
1,932

 
23

 
1,119

 
34

 
3,051

 
57

Commercial mortgage-backed
728

 
10

 
397

 
22

 
1,125

 
32

Other asset-backed
834

 
21

 
125

 
3

 
959

 
24

Total asset-backed
3,494

 
54

 
1,641

 
59

 
5,135

 
113

U.S. Treasury and obligations of government-sponsored enterprises
21

 

 
19

 

 
40

 

Foreign government
114

 
2

 
124

 
2

 
238

 
4

Total
$
12,689

 
$
404

 
$
2,614

 
$
117

 
$
15,303

 
$
521



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Table of Contents

Based on current facts and circumstances, the Company believes the unrealized losses presented in the March 31, 2019 securities in a gross unrealized loss position table above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional OTTI losses to be recorded as of March 31, 2019.
The following table presents the activity related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held as of March 31, 2019 and 2018 for which a portion of an OTTI loss was recognized in Other comprehensive income (loss).
Three months ended March 31
 
 
 
(In millions)
2019
 
2018
Beginning balance of credit losses on fixed maturity securities
$
18

 
$
27

Reductions for securities sold during the period
(1
)
 
(2
)
Ending balance of credit losses on fixed maturity securities
$
17

 
$
25


Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
 
March 31, 2019
 
December 31, 2018
(In millions)
Cost or
Amortized
Cost
 
Estimated
Fair
Value
 
Cost or
Amortized
Cost
 
Estimated
Fair
Value
Due in one year or less
$
1,144

 
$
1,155

 
$
1,350

 
$
1,359

Due after one year through five years
7,718

 
7,992

 
7,979

 
8,139

Due after five years through ten years
16,874

 
17,374

 
16,859

 
16,870

Due after ten years
12,176

 
14,004

 
11,893

 
13,174

Total
$
37,912

 
$
40,525

 
$
38,081

 
$
39,542


Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.
Derivative Financial Instruments
The Company holds an embedded derivative on a funds withheld liability with a notional value of $174 million and $172 million as of March 31, 2019 and December 31, 2018 and a fair value of $(2) million and $4 million as of March 31, 2019 and December 31, 2018. The embedded derivative on the funds withheld liability is accounted for separately and reported with the funds withheld liability in Other liabilities on the Condensed Consolidated Balance Sheets.
Investment Commitments
As of March 31, 2019, the Company had committed approximately $597 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.
As of March 31, 2019, the Company had mortgage loan commitments of $9 million representing signed loan applications received and accepted.
The Company invests in various privately placed debt securities, including bank loans, as part of its overall investment strategy and has committed to additional future purchases, sales and funding. Purchases and sales of privately placed debt securities are recorded once funded. As of March 31, 2019, the Company had commitments to purchase or fund additional amounts of $283 million and sell $150 million under the terms of such securities.


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Table of Contents

Note D. Fair Value
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are not observable.
Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, the Company seeks to price securities using third-party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted by the Company.
The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include i) the review of pricing service methodologies or broker pricing qualifications, ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria, iv) deep dives, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities and v) pricing validation, where prices received are compared to prices independently estimated by the Company.

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Table of Contents

Assets and Liabilities Measured at Fair Value
Assets and liabilities measured at fair value on a recurring basis are presented in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.
March 31, 2019
 
 
 
 
 
 
Total
Assets/Liabilities
at Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
Corporate bonds and other
$
203

 
$
20,707

 
$
253

 
$
21,163

States, municipalities and political subdivisions

 
10,596

 

 
10,596

Asset-backed

 
8,610

 
184

 
8,794

Total fixed maturity securities
203

 
39,913

 
437

 
40,553

Equity securities:
 
 
 
 
 
 
 
Common stock
136

 

 
4

 
140

Non-redeemable preferred stock
50

 
608

 
16

 
674

Total equity securities
186

 
608

 
20

 
814

Short term and other
253

 
1,126

 

 
1,379

Total assets
$
642

 
$
41,647


$
457


$
42,746

Liabilities
 
 
 
 
 

 
 

Other liabilities
$

 
$
2

 
$

 
$
2

Total liabilities
$

 
$
2

 
$

 
$
2

December 31, 2018
 
 
 
 
 
 
Total
Assets/Liabilities
at Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
Corporate bonds and other
$
196

 
$
19,396